Little fundamental change seen in new UK transfer rules
UK - Pension schemes will calculate transfer values based on the likely cost to the scheme of providing the pension, according to a statement issued by the Department for Work and Pensions (DWP).
The new rules, which come into force in April 2008, will effectively allow pension schemes to offer cash sums smaller than those that would allow them to buy equivalent benefits with an insurer.
The government reasoned that allowing private-sector pension schemes not to use insurers' calculations for values would avoid transfers jeopardising funds' sustainability. An earlier government consultation exercise found the majority of (69) respondents favoured an approach "consistent with what happens now. It is also an approach which does not affect the ongoing viability of the scheme."
Stephen Yeo, senior consultant at Watson Wyatt, said the decision offered "no radical changes".
"It's largely a continuation of the system as it is with a minor shift - that trustees control the basis for transfer value basis," he said. Under the rules, trustees will be responsible for determining the actuarial assumptions used to calculate transfer values.
He played down the practical significance of the ruling. "There is a school of thought that transfers aren't necessary. I can see their point. In the past few years, there has been a lot more fuss over transfers than the number of transfers justified. It's been largely a matter of principle."
One objection to the new rule is the potential for information shortfall among pension holders, despite a demand from the DWP that fund trustees tell scheme members what the transfer value represent.
Tim Keogh, a partner at Mercer Consulting, had argued that well-informed scheme members would be unlikely to transfer their entitlement.